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IMF Urges Coordinated Efforts to Tackle GCC Cash Crunch

DUBAI - The International Monetary Fund (IMF) said on Monday that the Gulf Cooperation Council (GCC) countries should take coordinated actions to tackle the deepening credit crunch.

Mohsin Khan, IMF’s Director for the Middle East and Central Asia, said that various initiatives taken by the UAE, and other GCC countries had been effective to a certain extent in cushioning the impact of the financial turmoil on their respective economies, but a coordinated approach to the issue by all member states was the need of the hour. In the wake of the current global crisis, GCC governments have been taking individual measures to ease liquidity constraints and restore confidence in their respective financial systems. While the UAE authorities committed a total of Dh120 billion to support the financial sector and gave blanket guarantees on all bank deposits, Qatar, Kuwait and Saudi Arabia took various other steps to ease liquidity constraints and restore confidence in their financial systems.

Speaking to Khaleej Times after releasing the “Regional Economic Outlook: Middle East and Central Asia,” Khan said while UAE banks were well capitalised, their asset quality was not clear due to their exposure to the property sector. He said the global melt-down had started to impact the region basically through two sources: lower oil prices and credit squeeze. “Although lower oil revenues will not affect government spending as most countries have surplus cash, a steady drop in oil prices due to the recession is bound to have a negative impact on investor confidence.”

Khan said the region’s financial sector had to take the brunt of the current international credit crunch.

“Global credit markets are very nervous and have become more difficult to tap, resulting in an inevitable slow down in development projects in the region.” He said fears of a slow down in real estate sector had pushed Dubai’s credit default swap to 600 points, further raising the cost of borrowing.

Khan said the second half of 2009 would see a turnaround for the global economy provided China and India would come out of the current crisis unscathed.

UAE Inflation Likely at 12.9 per cent in 2008: IMF